Every year, hundreds of thousands of people in the United States file for bankruptcy. As you probably know, bankruptcy will damage your credit significantly and will hinder your ability to qualify for loans and credit cards in the future. In some cases, your bankruptcy will remain on your credit report for as long as 10 years. However, this doesn’t mean it’s impossible to qualify for a personal loan after bankruptcy. In fact, it is possible to improve your credit score as you wait for the bankruptcy to be removed from your credit history. Here is some information that will help you get a personal loan even if you’ve filed for bankruptcy in the recent past.
Can You Get a Personal Loan While in Chapter 7?
A common misconception that people have when they shop personal loans is that Chapter 7 bankruptcy prohibits individuals from getting a personal loan. While it is true that it is often more challenging to get a personal loan while in Chapter 7, it is certainly not impossible. Bankruptcy typically lowers a credit score by 130 to 240 points. However, there one can get personal loan online specifically for individuals with bad credit.
How to Get a Personal Loan After Bankruptcy
The key to getting a personal loan after bankruptcy is doing everything in your power to boost your credit score. Here are a few steps that you can take to boost your chances of qualifying for a loan after bankruptcy.
Check Your Credit Reports
The first thing you should do to start rebuilding your credit is order and check your credit reports. Every year, you can request a few free copies of your credit report. You want to make sure that your bankruptcy was properly reported to all three of the major credit bureaus. For example, you should confirm that all of your accounts related to the bankruptcy have been zeroed. These bankruptcy-related accounts should be labeled as discharged.
If you notice that your credit reports don’t properly reflect your discharged bankruptcy, it is essential that you contact the credit bureaus to have this information corrected promptly. Before you open new lines of credit, you should have any issue with your credit report resolved. The credit bureaus may require that you submit documentation proving that your debts have been discharged.
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Use a Credit Card
The key to building your credit after bankruptcy is getting a credit card and using it wisely. Getting a secured credit card is one of the best things that you can do to rebuild your credit. When you get a secured credit card, your purchases will be backed by a deposit. The deposit you make will serve as the credit line for your account. If you default on your payments, you will be able to use the credit line as collateral. Usually, secured credit cards are easier to qualify for in comparison to other types of credit and loans. Also, secured credit cards can be used effectively to rebuild credit.
You can also get help from other people. A family member or trusted friend can add you to their card as an authorized user. This will allow you to take advantage of their good credit. You could also get them to co-sign you for your credit card application. If you want to have someone co-sign you for a credit card application, you should do this for a low-balance credit card like a Costco card, a gas card, or a department store card. Be sure to keep in mind that the individual who co-signs you will be financially responsible if you fail to make your payments in a timely manner. As long as you pay off your credit cards on time and maintain a low balance, you will be able to boost your credit score significantly over time.
Establish a Positive Payment History
One of the most important contributors to a credit score is payment history. It is important that you make all your payments on a timely basis to rebuild your credit from scratch. Not only does this apply to credit cards, but it also applies to utilities, loans, and any other types of debts. Even just one late payment could cause your credit score to become even lower so you should avoid making late payments at all costs.
Is a Secured Personal Loan a Good Idea?
For most people who have filed for bankruptcy, secured loans are a good idea. Generally, secured loans are intended for people who do not qualify for unsecured loans. Secured personal loans can be a great way to increase a credit score and build a good credit history after bankruptcy. Banks also tend to like secured personal loans because there is not much risk involved.
Tread Carefully with Bad Credit Personal Loans
It is possible to accumulate debt in many different ways. If you successfully manage your debt, you will be able to achieve good credit and enjoy different financing opportunities. However, if you have bad credit due to miss payments or bankruptcy, you may have to consider getting personal small short term loans. When it come to bad credit personal loans, it is important to tread carefully.
Personal Loans: Secured and Unsecured
Short term loan lenders are able to provide individuals personal loans depending on the creditworthiness of said individual. There are two types of personal loans: secured and unsecured.
- The most common type of personal loan that people obtain is the unsecured personal loan. These loans can be used for many different purposes, from paying off emergency expenses to making home improvements.
- Secured personal loans are a great financial option where you would use an asset as collateral to guarantee a loan in the even that you miss payments. Cars and homes are types of collateral that lenders are often offered.
Advantages of Bad Credit Personal Loans
After filing for bankruptcy, you may have a hard time getting a personal loan. Therefore, you will probably have to resort to bad credit personal loans. Some of the advantages of such loans include the following:
Access to Fixed Terms
If you get an unsecured personal loan without collateral, you will probably have to abide by fixed terms. The fixed terms will benefit you by helping you avoid fluctuating interest rate and other surprises. Then you will be able to budget your loan money to make repayments and you will have a good idea of what you need to pay each month.
Disadvantages of Bad Credit Personal Loans
Higher Interest Rates and Repayments
One of the main disadvantages of bad credit personal loans is higher interest rates and repayments. In the eyes of lenders, unsecured loans are riskier financial products versus secured loans. The reason for this is that unsecured loans don’t involve collateral. To make up for the risk, lenders add higher interest rates and make the repayment terms more strict. Lenders do this to increase the amount that they receive in a short period of time. You should always be aware that the lower your credit score is, the higher your interest rates will be through the schedule for loan repayment. You may also have other costs and fees applied to the loan.
Shorter Repayment Schedule
As hinted above, another disadvantage of cash loans bad credit is the shorter repayment schedule. For unsecured personal loans, the repayment schedule can be as short as three years. Even if you borrow a large amount, you will still be expected to pay it off more quickly.
Focus on Rebuilding Your Credit After Bankruptcy
Whether you choose to get a credit card or personal installment loans to rebuild your credit, it is a good idea to have a well-defined goal that you can toward. In general, a good credit score falls within the range of 700 to 749. Of course, the definition of a good credit score varies. For example, some creditors define any credit score above 720 as excellent instead of just good.
If you are able to get a loan, make sure you research lenders and pick the best, trustworthy ones. Loanry partnered with Fiona to help you in your search.